It’s Money, Honey: The Importance of Financial Planning for the LGBT Community

As the LGBT community grows larger due to increased acceptance by society, the number of same-sex individuals and couples considering starting a family that includes children is also growing. Of course, for same-sex couples, starting a family typically involves more time and planning than for heterosexual couples. All that time and planning can also involve a lot of money, as can planning for retirement and end-of-life care.

With that in mind, I spoke recently with Bill Denton, Vice President and Senior Financial Advisor at Merrill Lynch, about the importance of financial planning for members of the LGBT community.

Can you tell me what your job entails, specifically in regards to the LGBT community?

Absolutely. We do wealth management for domestic partners, as well as retirement and estate planning; we try to figure out who they are and what their priorities are, what’s important to them, and match those goals up to their investments.

What would your financial planning recommendations be for LGBT couples who are looking to have children, whether it be through surrogacy or adoption? Obviously, it’s an expensive process either way.

Well, I think the main thing is to sit down and talk with the couple about what their wishes are with their children. So, whether it’s foster parenting or surrogacy or adoption – working closely together with their attorney and CPA. Of course the state adoption laws are different, so it takes everybody working together as a team with their attorney and their CPA to talk about their tax advantages like with adoption credits, thing like that. So, it can get complicated, but I think the main thing is just talking with the couple about what they want to do, and address the issues about having children.

A lot of couples considering having children may not be aware of the costs involved. Based on your experience, what is the price range that a couple could be looking at for these processes?

Well… I really don’t know the pricing. Adoption, surrogacy, and foster parenting are all very different. I think it just really depends what the couple is trying to do; their parenting desires, their guardianship regarding months… so I don’t really know the cost involved; it would depend on the road the couple wanted to go down.

Depending on what state an LGBT couple resided in, certain laws may be encountered that potentially make the process easier or more difficult regarding family planning. Based on your experience, what is entailed in the creation of estates or wills, that sort of thing?

Well, I think the main thing is that you want to protect your assets. So with the state planning for domestic partners, you want to make sure that you have a will (of course) that specifies how you want your assets to be distributed after death: who should serve as your personal representative, whether it’s an executor or trustee, to settle the estate and distribute it accordingly. So, there are different types of legal documents that can help you do this, from wills and living trusts, living wills, power of attorney… so mainly, it’s a lot of legal documentation to make sure your desires are met.

There’s also, of course, where you want to minimize the taxable value of your estate, so you want to make sure that you lessen some of the impact that a state tax has, and you can do this by using a variety of trust-related and wealth transfer strategies that would reduce the size of your taxable estate.

The recent Supreme Court decision in United States v. Windsor was a major victory recently for same-sex couples in terms of financial benefits, but the ruling there doesn’t necessarily affect how every couple needs to plan at this point. Depending on what state someone lives in, is there a difference in how much work needs to be done in order to insure end-of-life planning and estate planning is met?

Well, absolutely, DOMA is a huge step in the right direction. Unfortunately, it still does matter in which state you live in, especially as a married couple. So if you are a same-sex couple in a state that does recognize the marriage, clearly, you’ve got some really good benefits that this recent court decision will change. Like estate taxes, that is one where you can leave roughly five million dollars to your spouse, so that is a huge thing with estate taxes. Also, social security benefits – when one spouse dies, the survivor has the option of either claiming his or her own social security benefits, as well as the spouses’, whichever is higher. Those are two huge things that affect same-sex couples.

For LGBT individuals who don’t have children, or even for those who do, what can be done to prepare for retirement and living after retirement, in those years where they may not be working.

We do a lot of retirement planning for domestic partners, so you get special privileges when it comes to rolling over at a higher rate from a 401K; the spouse is named beneficiary. So this is a privilege that’s limited to spouses, which will now allow retirement savings rollovers go to same-sex couples, which is terrific. We also look at the spouses’ taxes and whether it’s advantageous to file taxes jointly, or to do them individually; at least in some states, married couples will have the option of filing jointly, which could help them taxwise. We do a lot of retirement planning, really with all of our clients, just talking about how to secure a retirement that they want and sort of envisioning: “What is your dream?” “What is it that you’re trying to accomplish?” “When do you want to retire?” We help them determine how much is enough to retire. We do a lot of retirement planning with our clients.

Is there any other advice that you would give to LGBT couples?

I guess the main thing is that we’ve taken a huge step in the right direction, and that, because it is a little confusing; some states recognize same-sex marriage, and some states don’t. I think it’s important to work with a professional, whether it’s a financial advisor or CPA or an attorney to make sure that you are taking advantage of the new benefits that are available. Full federal benefits are now available, like survivor benefits, military benefits, when you have a spouse that’s outside the U.S. These are some great benefits that are available to us, and we need to make sure that you’re going down the right path with a professional.